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Univision Potboiler Bubbles Over

A standoff with Televisa threatens to get real ugly real fast.
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The gloves are off between Spanish language broadcasting powerhouse



and producer


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In what started as a tiff over $1.5 million in royalties, the companies have gone several rounds over various issues ranging from money to talent to film editing. Now, at least one analyst says she believes the dispute has grown much more fractious than Wall Street had assumed and that the fallout could damage Univision investors.

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Mexico's Televisa sued Univision this past spring, claiming Los Angeles-based Univision improperly withheld royalty payments, altered Televisa programming without consent and violated a licensing agreement.

In an Aug. 15 filing in California district court, Univision is counterclaiming that since the disagreement began, Televisa has been holding back talent from key Univision shows, failing to cooperate on postproduction needs and accepting royalty payments it is not entitled to.

Merrill Lynch media analyst Jessica Reif Cohen said Tuesday in a research report that "previous discussions with and public comments from both management teams made it clear that the relationship had significantly deteriorated, even before Televisa filed suit against Univision. However, the allegations by Univision suggest the depth of the enmity is even deeper than we had imagined."

The dispute over soap opera royalties prompted a Televisa executive to quit the Univision board earlier this year. The two sides have a production agreement through 2017 and there is little chance that this fissure will cause a full rift. Still, Televisa was unhappy with the appointment of Ray Rodriguez, the current COO, and would like to have more say within the Univision organization.

Univision depends on Televisa to produce popular Latin telenovelas. If the two parted ways, it would pose big problems for Univision, which needs Televisa product to fill its schedule. Televisa, in turn, would lose significant royalties from any split.

The royalty disagreement is over a relatively small amount of money -- $1.5 million. Univision claimed in turn that it overpaid Televisa $5.2 million in royalties.

"Given the posture the two companies have taken and what we believe are starkly different visions for the future of Univision, a quick resolution to the current discord does not appear to be forthcoming," Merrill's Cohen wrote. She sees limited upside for Univison in the near term.

Univision missed second-quarter targets earlier this month. The company made $36 million, or 10 cents a share, down from the year-ago $80 million, or 23 cents a share. Revenue rose 3% from a year ago to $508 million, missing the $523 million Thomson First Call estimate. Univision also guided toward a third-quarter profit of 21-22 cents a share on a low-single-digit percentage gain on the top line. Analysts were expecting 24 cents on 7.5% revenue growth.

On Tuesday, Univision was trading down 17 cents to $26.63, and Televisa was trading down 7 cents to $64.93.